Housing Authority of the City of Van Buren

2021-003 Accounting for Business Activities Condition: The Housing Authority of the City of Van Buren is managing the Ozark Housing Authority. The agreement between the two parties provides that the Ozark Housing Authority will pay a management fee of $15,000 annually for the administration of the agency. Ozark Housing Authority reimburses the Van Buren Housing Authority for maintenance labor and project specific administrative costs. There is no separate accounting established to track the fees and the related costs for the business activity outside of the Low Rent Housing Program. In addition, a cost allocation plan was not developed to properly distribute indirect costs between the Low Rent Housing Program and the business activity. As a result, the financial records do not provide a method to determine whether the management fee is sufficient to pay for the indirect costs associated with the managing of the Ozark Housing Authority. Criteria: The Annual Contributions Contract requires that funds must be used for the purpose of managing their individual Low Rent Housing Program and not fund other agencies programs. Under the Annual Contributions Contract, the PHA agrees to comply with HUD requirements for the development and operation of its public housing projects (24 CFR section 990.115). In addition, OMB Title 2 CFR section 200.416 requires that a cost allocation plan be developed to spread benefitted activities on a reasonable and consistent basis. Indirect costs, such as the Executive Director, accounting, and other costs items, should be allocated separately between the Low Rent Housing Program and the related business activity. Context: The Housing Authority has been managing the Ozark Housing Authority for several years and has been paid a management fee for these services. For accounting purposes, there has not been a separate management program established to account for revenues and expenses of this activity, nor has there been a cost allocation established. Effect: Due to the lack of forming a cost allocation plan and the cost of the time incurred managing the agency, one can not determine whether the fee is sufficient to cover the indirect costs or whether the Van Buren Housing Authority?s Low Rent Housing Program is funding additional cost which is an ineligible item. In addition, the Housing Authority may be losing out on the accumulation of non-federal income. Recommendation: We recommend that a business activity fund be established and a cost allocation plan should be developed to distribute costs to the business activity. We recommend the Housing Authority establish a budget documenting the cost. Response: We will contact our Fee Accountant and work with them to establish a Business Fund accordingly.